PROVIDENCE, R.I. (WPRI) – Flareups of new COVID-19 cases in states that have reopened more quickly have Boston Fed President Eric Rosengren predicting the economy will bounce back more slowly in the second half of the year.
The head of the Boston Fed spoke at the Greater Providence Chamber of Commerce on Friday, providing the regional business community with an outlook of what people should expect in the second half of the year.
Rosengren noted that nationwide unemployment rate of 13.3% in May turned out stronger than expected. But he underscored how the pandemic has hurt workers across all ages, and has disproportionately affected Hispanic and black workers, who have shown the highest increases in unemployment.
The Boston Fed president also offered a more pessimistic outlook on the economic rebound moving forward, saying he’s not as bullish as the Federal Open Market Committee – or FOMC – which predicted in June that real GDP would decline by 6.5% this year and the nationwide unemployment rate would total 9.3% by the end of 2020.
“Unfortunately, I believe even this dire outlook may be too optimistic,” Rosengren said in prepared remarks. “My own forecast is somewhat more pessimistic, as I expect the unemployment rate to still be at double-digit levels at the end of the year, given what are likely to be persistent economic headwinds from the pandemic over the second half of the year.”
Rosengren pointed to persistent community spread of COVID-19 in many states, namely those that have reopened their economies more quickly than others. He specifically noted South Carolina and Florida.
But new cases also soared to new highs when measuring seven-day averages in several other states, including Alabama, Arizona, California, Nevada, North Carolina, Oklahoma, Oregon and Texas, according to the data collected by John Hopkins University.
“In sum, given the death toll of the virus even with the economic lockdown, I see a substantial risk in reopening too fast and relaxing social distancing too much,” he said.
Rosengren noted his outlook doesn’t even take into account the possibility of a second wave of the virus, which is what many people predict will happen at some point before the pandemic is contained.
A similar second wave happened with the 1918 Spanish Flu, the 1957-1958 Asian Flu and the 2009-2010 H1N1 Flu, also known as the Swine Flu.
“The economic toll of the virus is closely tied to how successfully we can get the public health pandemic under control,” Rosengren said. “The lack of containment could ultimately lead to a need for more prolonged shutdowns, which result in reduced consumption and investment, and higher unemployment.”
Countries with better containment efforts than the United States – such as Japan and South Korea – have had less disruption in their labor markets, he added.
“As a result, I believe that a more rapid and complete economic recovery requires better ability to contain the pandemic,” Rosengren said.
The Boston Fed president also said that there’s a need for additional “highly stimulative monetary policy,” even if the response to the pandemic has been “calibrated appropriately.”
In addition to the economic outlook, Rosengren took the opportunity to discuss the Boston Fed’s ongoing Main Street Lending Program, which helps provide credit to small- and medium-sized businesses during economic downturns.
He noted the tendency for lending conditions to tighten during recessions, making it challenging for certain businesses to borrow under favorable terms.
He said the program is off to a positive start this year, with more than 200 financial institutions registering to participate. He encouraged others to explore the possibility of registering.
“Lenders have vested interest in the resilience of the businesses in their market, and this program gives them a way to help bridge those businesses that were sound before the pandemic to better days,” he said.